Canada housing agency sees moderation in housing starts in 2015

A man works on a new construction home in Kitimat, in northwestern British Columbia on April 13, 2014. REUTERS/Julie Gordon

OTTAWA (Reuters) - Canada’s federal housing agency softened its forecast for housing starts in 2015, saying it expects the pace of new home construction to gradually moderate in the coming years.

Although the Canada Mortgage and Housing Corp said on Friday it expects employment and disposable income to continue to support the country’s robust housing market, it noted the downside risks have increased since its October forecast because of the decline in oil prices.

As such, the CMHC said it had widened its forecast ranges for starts, sales and average prices.

Housing starts are expected to range between 154,000 and 201,000 units this year, with a point forecast, or most likely outcome, of 187,400 units, the CMHC said.

That is slightly lower than the forecast it gave in October of a range of 172,800 to 204,000 units, with a point forecast of 189,500. Under its base case scenario, starts will decline by 1 percent compared to 2014, CMHC said.

“Lower oil prices will negatively affect oil-producing economies like Alberta, Saskatchewan, and Newfoundland and Labrador, which will only be partly offset by the positive effects of lower exchange rates and interest rates across all provinces,” said CMHC’s chief economist Bob Dugan.

For 2016, the CMHC expects a range of 148,000 units to 203,000 units, with a point forecast of 185,100.

Canada avoided the worst of the global financial crisis and has seen its housing market accelerate amidst years of low interest rates.

Most economists and policymakers still expect the market to see a soft landing, though the sharp drop in the price of oil has raised some uncertainty around Canada’s economic outlook. Oil is a major export for Canada.

The agency expects average home prices to increase by 1.5 percent compared to last year, while existing home sales are seen as unchanged.